Pepperfry and Urban Ladder's 'offline' idea to ward off global brands

In early June, Pepperfry, which claims to be India’s largest organised furniture retailer, opened a 3,500 sq ft experience store in Ahmedabad, as the Goldman Sachs- and Norwest Venture Partners-backed etailer laid the ground to morph into an omnichannel retailer. Such a centre provides prospective customers a chance to browse through Pepperfry wares, without making any purchases.

The Mumbai-based venture hopes that people will go online — to the site or the app — when they make up their minds. If connected consumers are aware of the firm’s products — and of its rival Urban Ladder, backed by Kalaari Capital and SAIF Partners — many of them now say they want to touch and feel these pieces. To keep pace, both these companies are now tweaking their business models.

Pepperfry opened its first experience centre at Kanjurmarg in suburban Mumbai in late 2014 and has 20 such outposts across the country. Urban Ladder has two — a 3,500 sq ft centre at its headquarters in Yemlur, and a 750 sq ft sofa centre at HSR Layout, both suburbs of Bengaluru.The latter provides a picture of the future for Urban Ladder: the centre is a fourth the size of traditional sofa sellers, yet stocking 60% of its sofa catalogue.

Initial reports suggest that consumers are buying the idea — the average offline basket size is at least thrice that of online purchases.

Meanwhile, in Pepperfry’s case, the firm is going from just experience centres to franchising its brand, with over 20 outlets expected to be opened by franchisees in the next year and a half. Ambareesh Murty, CEO and cofounder of Pepperfry, says, “We will expand by setting up offline franchisee stores in tier-2 and -3 towns and we are pushing to be profitable in 12 to 18 months.”

Urban Ladder wants to have at least four-five operational stores by this Diwali and 10-12 by the end of the financial year. To try to keep the cash burn down, the company is operating on the principle of less is more.

Both companies don’t have to look far back to be concerned. Fab Furnish, backed by the deep pockets of Rocket Internet, the German startup incubator, struggled to stay afloat for four years in a market that was driven by discounts and heavy cash burn. In April 2016, the firm was sold for under `10 crore to the Future Group.

Now, Fab Furnish as a brand may be shuttered entirely. “Compared with existing offline players, we have to be at least four times as efficient with our use of real estate to be as successful,” says Ashish Goel, CEO and cofounder, Urban Ladder. To do this, it will rely not just on clever architecture — creating multiple levels in a small space — but also leverage new technologies such as artificial and virtual reality to give consumers better insights on their options.

Urban Ladder expects to be profitable by March 2019, as it too expands aggressively offline. “We spent two years debating this offline push, but are now committed to this expansion.”

India’s largest furniture retailers (both bristle at the etailer tag) are making this strategic shift at a time when the industry itself is in transition. While unbranded and unorganised retailers may have held sway for decades, brands are now making a strong play for this market, online and offline.

The Giant’s Here For Pepperfry and Urban Ladder, this means more competition and more stress on validating their evolving business model. The most significant of these may be the opening of Swedish furniture giant Ikea’s store in Hyderabad in early 2018. “Like other high-value categories, Pepperfry and Urban Ladder have discovered that not everything can be sold online alone, without consumers experiencing their products,” says Pragya Singh, vice-president, Technopak, a retail consultancy.

The imminent advent of Ikea may be pivotal in this story. Ikea has been sourcing products such as textiles, plastics, carbon and steel, lights and metals for three decades (amounting to €350 million annually) and will double this by 2020. Four years after getting an approval to open for business, Ikea now plans to open 25 stores by 2025 in India. “Ikea believes in India,” says Patrik Antoni, deputy country manager, Ikea India.

“India is also making Ikea better as we are continuously learning in our journey here; some products adapted for Indian conditions (heat and humidity) in our range will now be used globally.” As part of this expansion, Ikea will hire 500-700 people per store and has invested over €150 million in its foundation, including a project called Next Generation to revive local crafts and source products for select stores globally.

Experts suggest that both furniture upstarts may have to work hard to compete with the likes of Ikea. “Innovative and savvy retailers like Ikea are combining customer identification and analytical capabilities of data from internet retailing with the time-tested advantages of face-to-face retailing,” says Anindya Ghose, Heinz Riehl chair professor of business at New York University’s Stern School of Business.

“Ventures like Urban Ladder and Pepperfry will have to figure out ways to get access to that level of customer behavioural information, in addition to positioning themselves to compete on efficient customer service and beautifully designed products.”

If Ikea and American furniture brand Ashley (with 100 India stores planned in the next few years) are disrupting offline retail, Pepperfry and Urban Ladder are on the move, to try to head off competition. Both firms are expanding their offline stores, adding to their inventory and beefing up their supply chain. While Urban Ladder is focused on building its own brand of furniture, Pepperfry is a market place, listing 900-plus brands on its platform and over a dozen in-house brands.

“Our strengths are our back-end and supply chain,” says Murty, former country manager of eBay India. “We have over 400 vehicles, 17 distribution centres and reach 500 locations, and hope to double this number.” Urban Ladder operates from a large distribution centre in Bengaluru, serves 21 locations and is pushing hard into the non-metros like Nashik, Vijayawada, Ludhiana and Mysuru, and has several more towns in the works.

The supply chain heft will come under scrutiny when faced with the growth of horizontal ecommerce players that are enticed by the meaty margins in furniture (45% compared with 10-20% for electronics and fashion, the two biggest categories). Furniture, electronics and fashion are the three largest segments of ecommerce in India. However, while 80% of sales for electronics comes from top 20 brands (it’s 60-40 for fashion), furniture is more evenly balanced.

“Furniture is now the priority category for Flipkart to drive growth,” says Nandita Sinha, senior director, home & furniture, for the etailer. “Flipkart is going to be a one-stop destination for furniture.” Over 20,000 products are listed, with logistics and after sales service supported by Ekart and Jeeves Consumer, two group companies, respectively.

Tech giant Amazon too is on the move, with plans to have a million products available on its platform by Diwali this year. “During our recently concluded Great India Sale… the furniture category saw a seven-fold jump in sales, making it the biggest ever day since category launch,” says a spokesperson.

Others with new models such as Furlenco and Rentomojo (furniture rentals) are giving consumers even more choice, and Pepperfry and Urban Ladder more headaches.

Murty of Pepperfry and Goel of Urban Ladder are preparing to defend their companies and their category from rampaging competition.

“The arrival of Ikea is a validation of the promise in the Indian market,” says Goel. “We have built a strong brand to take them and everyone else on.” Meanwhile, Goel is leaning on his company’s stout supply chain and strong relationships with suppliers to steer ahead of the pack. “We want to target the entire interior designer ecosystem, sell furniture across the value chain and build the best supply chain network to stay ahead of our competition.” With all the action in the market, 2017 may well prove to be pivotal for both companies.

Competition Everywhere

Flipkart India’s largest retailer wants to be the largest furniture retailer, too, with claims of a 15-fold growth in this business in 2016. The company has recorded sales of over Rs 2,600 crore from its furniture unit. It has begun working with Jeeves Consumer, one of its group companies, to provide installation and after-sales facilities for furniture buyers

Ikea The Swedish furniture and home accessories giant has committed $1.5 billion to India, with plans to open 25 of its large stores nationwide. The company unveiled its plans to enter India way back in 2012, but has had to wait for regulatory changes before unveiling its expansion. First store slated to open in Hyderabad in 2018

Ashley Furniture The American brand plans to open 100 stores in India in the next few years, via a brand licensing route. It opened its first store, spread across 400,000 sq ft in Pune in January this year, with outlets expected not just in Mumbai, Delhi and Bengaluru, but smaller towns too. The company has been sourcing from India for over 14 years

Amazon It has opened seven new warehouses in India as it seeks to grow its presence in products such as furniture. It launched its furniture vertical a couple of years ago and lists products from vendors like Pepperfry and Urban Ladder, as well from its own portfolio. With $5 billion committed to India operations, high-value items like furniture may hasten its dominance of India’s ecommerce market

Home TownThe furniture label by India’s retail maven Kishore Biyani bought struggling online retailer Fab Furnish in a fire sale in 2016, but has struggled to leverage this deal. Instead, the online retailer’s unit may be shuttered, with Biyani in the midst of a 3 million sq ft expansion of his Hometown retail business